The All‐Pay Auction with Nonmonotonic Payoff

I model innovation contests as an all‐pay auction in which it is possible not to achieve successful innovation despite costly R&D investments, and as a result, there is no winner. In such a case, the winning payoff turns out to be nonmonotonic in own bid. I derive the sufficient conditions for the existence of pure strategy equilibria, and fully characterize the nondegenerate mixed strategy equilibrium. In the mixed strategy equilibrium, the support of the low‐value bidder is not continuous, and both the high‐value and the low‐value bidders place an atom in the (distinct) lower bound of their respective support. Under symmetric valuation, both bidders place an atom at zero. These results can explain why one does not observe very low quality innovation in real life, or why even symmetric firms may stay out of an innovation contest.     

Regulating the Anticommons: Insights from Public‐Expenditure Theory

This article offers a new interpretation of the traditional Cournot complements problem, or anticommons, by using the theory of public goods to gain a perspective on the problem. Specifically, I examine the pricing strategies and regulation of multiple monopolies that produce products which consumers view as perfect complements. I show that collusion by the firms increases total social welfare and that the collusion problem can be reinterpreted as a problem of provision of public goods from the point of view of the firms. I take this insight further and derive the familiar concepts of the Samuelson marginal condition and the ratio equilibrium for the firms. I compare these outcomes to the first best solution and then apply incentive‐compatible mechanisms to strategically implement the Pareto superior ratio‐equilibrium outcome and the optimal marginal‐cost pricing outcome. Finally, I show how this methodology can be applied to the more familiar Cournot model of oligopoly.     

Social Learning in Beauty‐Contest Games

We study the impact of social learning on the depth of reasoning in an experimental beauty‐contest game. Naive advice and observation of others' decisions as two forms of social learning trigger faster convergence to the equilibrium. We find that subjects who receive advice outperform uninformed subjects permanently, whereas subjects who observe others' past behavior before making their decision only have a temporary advantage over uninformed subjects. A series of control‐treatments and simulations indicate that the latter result is due to subjects failing to make the most out of observing others.     

Multi‐battle Contests: An Experimental Study

We examine behavior of subjects in simultaneous and sequential multi‐battle contests, where each individual battle is modeled as an all‐pay auction with complete information. In simultaneous best‐of‐three contests, subjects are predicted to make positive bids in all three battles, but we find that subjects often make positive bids in only two battles. In sequential contests, theory predicts sizable bids in the first battle and no bids in the subsequent battles. Contrary to this prediction, subjects significantly underbid in the first battle and overbid in subsequent battles. Consequently, instead of always ending in the second battle, contests often proceed to the third battle. Finally, although the aggregate bid in simultaneous contests is similar to that in sequential contests, in both settings, subjects make higher aggregate bids than predicted. The observed behavior of subjects can be rationalized by a combination of multidimensional iterative reasoning and a nonmonetary utility of winning.     

The Stability of Social Preferences in a Low‐Income Neighborhood

We investigate whether social preferences are stable across contexts using a field population of low‐income Americans. We develop and demonstrate a simplified, visually‐based experimental methodology appropriate for this population. We show that choices in a laboratory public goods game predict giving in real donation experiments, as well as self‐reported donations and volunteering outside the lab. At the same time, choices vary systematically by individual characteristics and decision context. Thus, our results provide evidence both for an underlying stable social preference and for the role of context in influencing the expression of that preference.     

When Identifying Contributors is Costly: An Experiment on Public Goods

Studies show that identifying contributors increases contributions to public goods. In practice, viewing identifiable information is costly, which may discourage people from accessing it. We design a public goods experiment in which participants can pay to view information about identities and contributions of group members. We compare this to a treatment in which there is no identifiable information, and a treatment in which all contributors are identified. Our main findings are that: (i) contributions in the treatment with costly information are as high as those in the treatment with free information, (ii) participants rarely choose to view the information, and (iii) being a high contributor is correlated with choosing to view information about others.     

The Effect of Subtracting a Constant from all Payoffs in a Hawk‐Dove Game: Experimental Evidence of Loss Aversion in Strategic Behavior

Economists and psychologists have documented patterns of individual decision‐making behavior (e.g., loss aversion) whereby losses and gains are treated differently. However, there has been little evidence of such patterns in multiplayer games. I report results showing the strongest evidence I know of that this phenomenon is present in games. Experimental subjects play two hawk‐dove games that are identical up to a constant; in one, all payoffs are positive, while in the other, payoffs are negative if and only if both players choose “hawk.” Under both fixed pairs and random matching, differences between the games are substantial, significant, and consistent with loss aversion.     

The Determinants of Corruption: Cross‐Country‐Panel‐Data Analysis

This study explores the determinants of corruption, utilizing the Hausman and Taylor's technique to estimate a random effects model that incorporates both the effects of corruption determinants that vary over time and those that are time‐invariant, and using a larger panel dataset and a comprehensive set of corruption determinants. The first interesting result is that perception of strong support for rule of law is strongly correlated with reduced corruption, suggesting that a better quality of law enforcement reduces corruption. Rich countries have lower corruption, and the perception of free expression and accountability strongly decreases corruption, indicating that providing greater opportunities for citizens to participate in selecting their government, more freedom of expression, and free media are effective ways of curbing corruption. Conversely, natural resource abundance, country population size, country's dominant religious tradition, ethnic fractionalization, and political stability are unimportant determinants of corruption, while previous research has suggested they are important.     

Corruption Via Media Capture: The Effect of Competition

In this article, we compare a government's optimal choice of whether to engage in corruption by capturing the media outlets through bribery in two alternative media market structures: monopoly versus duopoly. While there is an extra bribe claimant in a media duopoly relative to monopoly, it may also be harder for each firm to individually expose corruption when the rival co‐opts with the government. We find that when the latter effect is stronger than the former, media is captured at lower bribes under duopoly relative to monopoly and in such instances media competition facilitates rather than hindering corruption.     

EFFECTS OF IMPROVING INFRASTRUCTURE QUALITY ON BUSINESS COSTS: EVIDENCE FROM FIRM‐LEVEL DATA IN EASTERN EUROPE AND CENTRAL ASIA

Public infrastructure is one of the important determinants of economic growth. Not only access to but also quality of infrastructure affects firm productivity as well as people's livelihood. Frequent interruptions of the infrastructure‐service supply impose extra backup costs on enterprises, hinder their timely business activities, and result in large losses of sales opportunities. This paper focuses on the impacts of improving the quality of public utilities (electricity, water supply, and telecommunications), using firm‐level data from 26 transition economies in Eastern Europe and Central Asia. The results suggest that firm costs would significantly increase when electricity outages occur frequently and the outage duration becomes longer. Similarly, when more time is required to restore suspended water supply, firms' competitiveness would be weakened. Not surprisingly, the impacts tend to vary depending on industry. The construction, manufacturing, and hotel and restaurant sectors are found particularly vulnerable.     

INCOME INEQUALITY, RECIPROCITY AND PUBLIC GOOD PROVISION: AN EXPERIMENTAL ANALYSIS

This paper analyses the impact of income inequality on public good provision in an experimental setting. A sample of secondary school students were recruited to participate in a simple linear public goods game where income heterogeneity was introduced by providing participants with unequal token endowments. The results show that endowment heterogeneity does not have any significant impact on contributions to the public good, and that consistent with models of reciprocity, low and high endowment players contribute the same fraction of their endowment to the public pool. Moreover, individuals appear to adjust their contributions in order to maintain a fair share rule.     

The Impact of Political Influence on Appointees: Evidence from the Small Business Administration Disaster Loan Program

Presidential disaster declarations provide disaster aid through the Federal Emergency Management Agency (FEMA) and are known to be motivated by political factors as well as by need. The extent to which politics influence the Small Business Administration (SBA) disaster declaration decision, made by a presidential appointee, has not been previously measured. We use new data covering 1960–2013 to show that SBA declarations are subject to the same political influences as presidential declarations. Disasters occurring during reelection years, as well as those occurring in electorally important states, are more likely to receive SBA declarations. The effect of politics is stronger in the period prior to the passage of the Stafford Act in 1988, showing that the two types of declarations are substitutes for political purposes.     

Why Chinese Exports Face So Many Trade Remedy Actions: An Empirical Study Based on Multi‐country and Multi‐industry Data

This paper offers a comprehensive analysis of the reasons for the large number of trade remedy actions taken against China. Using a multi‐country and multi‐industry dataset, the present paper shows that the macroeconomic situation of China's partners has a great influence on the probability of trade frictions arising with China. Moreover, the more powerful the industry is, the more likely it is to take trade remedy actions against China. The empirical results reveal that China has been hurt under the operating mechanism of the WTO, and the number of free trade agreements is negatively related to the initiation and approval of trade remedy actions. Basically, the determinants for countervailing and double remedy measures are identical, while they are different from determinants of antidumping measures. Accordingly, strengthening communication with trade partners will alleviate friction between China and its trade partners. Meanwhile, making use of foreign lobbies' power, actively integrating into the international trading system and participating in regional trade agreements are effective ways for China to deal with the “new normal” of trade frictions.     

School district consolidation: Market concentration and the scale‐efficiency tradeoff

Consolidation is often proposed as a strategy for increasing school district quality without increasing educational funding. However, if consolidation reduces competition in the local school market and reduces efficiency, any savings from exploiting economies of scale may be lost to increased inefficiency. We use a stochastic cost function to investigate these effects for districts in Texas. We find important economies of scale, but we also find that increased market concentration leads to increased cost inefficiency. Finally, we illustrate the practical importance of these two potentially offsetting factors in a simulation that considers consolidating Texas school districts to county‐level districts. We find that failure to consider the effect on competition can lead to large overestimates of the benefits of consolidation.     

Weathering the Storm: Measuring Household Willingness‐to‐Pay for Risk‐Reduction in Post‐Katrina New Orleans

The city of New Orleans suffered extensive damage as a result of Hurricane Katrina. Rebuilding involves decisions on investment in protective measures. An exhaustive list of protective measures has been studied in planning documents, with public comment solicited in town hall meetings. In this study we employ a different approach to examine public sentiment toward the selection and investment in protective measures. Our study uses a stated preference choice experiment with a stratified sample to investigate individuals' willingness‐to‐pay for rebuilding New Orleans's man‐made storm defenses, restoring natural storm protection, and improving evacuation options through a modernized transportation system. We target residents of the New Orleans metropolitan area as well as other U.S. citizens. Our results indicate that individuals are willing to pay for increased storm protection for New Orleans, but values differ among residents of the New Orleans metropolitan area and other U.S. citizens.     

Intra‐provincial Revenue Sharing and the Subnational Government's Fiscal Capacity in China: The Case of Zhejiang Province

This study investigates whether the tax‐sharing system has deteriorated the fiscal capacity of subnational governments by analyzing how fiscal revenues are divided between provincial and sub‐provincial governments. Our study of county‐level fiscal data from Zhejiang Province in China during 1994–2007 shows that intra‐provincial revenue‐sharing rules favor county governments in two ways: (i) they improve county governments ‘fiscal autonomy in terms of using their own revenues; and (ii) they enhance county governments ‘fiscal capacity through province‐to‐county general transfers. In addition, we find that intra‐provincial fiscal revenue‐sharing rules and transfers reduce fiscal disparity between counties.     

Social Information “Nudges”: An Experiment with Multiple Group References

Social information “nudges” concerning how others perform typically boost individual performances in experiments with one group reference point. However, in many natural settings, sometimes due to policy, there are several such group reference points. We address the complications that such multiple group social information might introduce through an experiment. The boost to average performance is significant and comparable to the one group case. Between‐group inequality does not change. Individual inequality falls, however, because the boost is largest among the pre‐“nudge” very poor performers. Finally, the boost to average performance is highest when individuals freely choose their group affiliations.     

Risk‐Taking Behavior: An Experimental Analysis of Individuals and Dyads

The decision to undertake risk is often made by pairs (dyads), while much of the economics literature on risk taking focuses on the individual. We report the results of controlled laboratory experiments that compare behavior between individuals and pairs. Using the 2002 procedure and a within‐subjects design, we find that pair choices are largely consistent with subjects bargaining over the outcome rather than the pairs taking a more extreme stance than the individual members. Further, gender and age but not personality seem to influence relative bargaining weight. We also find that individuals are more willing to take risks after making decisions as part of a pair than beforehand. Both the personality of one's partner and nontask social interaction influence subsequent individual risk‐taking behavior.     

The Effect of Whistle-Blowing Incentives on Collusion: An Experimental Study of Leniency Programs

Policymakers are increasingly using whistle-blowing incentives aimed at curtailing illegal or unethical behavior. We theoretically and experimentally investigate one version of whistle-blowing incentive: leniency programs aimed at curbing anticompetitive activities by firms, by reducing the punishment faced by a cartel member who reports the cartel's behavior. The theoretical model captures the two important effects of whistle-blowing incentives: the direct effect, a reduction in the stability of cartels, and the counterproductive indirect effect, an increase in the incentives to form cartels in the first place by lowering the cost of exiting them. As these point in opposite directions, the net theoretical effect is indeterminate. Our laboratory experiment compares two leniency programs—full immunity from fines and partial immunity—against a baseline with no whistle-blowing incentives in place. We find evidence of the direct effect but not the indirect effect, and thus both programs reduce the extent of price fixing and the damage associated with it.     

Negotiating with Terrorists: The Costs of Compliance

It is often argued that negotiating with terrorists will encourage terrorist attacks. To date, corroborating empirical evidence is scarce. Using ITERATE data, we investigate the impact of conceding to terrorist demands on terror activity. We restrict attention to hostage events with clear‐cut demands from terrorists. Our sample period runs from 1978 to 2005 and comprises 1435 events in 125 countries. Estimating a flexible and dynamic Structured Additive Regression model, we find that the percentage of successfully negotiated events has a nonlinear effect on future terror intensity consistent with our simple theoretical model. More specifically, although moderate rates of negotiation increase the number of future terror events, higher negotiation rates tend to have the opposite effect. The estimated threshold is around 20%.